contrarian@coalmine's Comments

WaMu Shows, Again, Smart Money Can Be Wrong

Sat, 27 Sep 2008 07:54:05 -0400

You state, "don’t make a financial company your largest position, unless it has a very strong balance sheet and no liquidity issues, plus superior management, like Berkshire Hathaway (BRK.A)".

I'm always amused that investors place blind faith in the Berkshire Hathaway portfolio, with the assumption that there are no potential ticking financial bombs hidden somewhere in the vast insurance empire; nor do they question the high P/E ratios of some of the BRK.A core investments, especially consumer staple companies, that sell at premiums simply because Warren Buffet consumes them (i.e. invest in what you personally like).

Armchair quarterbacking is great sport--"don’t make a financial company your largest position"-- but, it's worthless as advice for future investment returns. I'll stick with "Buy low, Sell high".

Performance for Harvard, Yale Endowments in 2008

Mon, 22 Sep 2008 07:51:20 -0400

RememberCTR...You state that "Yale, Harvard, Stanford, MIT, Princeton did not grow to be $15-40 Bn funds on donations"....you're correct, but don't discount the compounding effect of donations which span, in Harvard's case, the 138 years since the endowment's inception (ie. aprox. 1870); it's a stable source of annual liquidity from the most affluent alumni in the world. And, as to the question about whether I enjoy shooting from the hip, I can answer unabashedly, "Of course I do, Isn't that what the world of blogging is all about?"

Market Student, says that "A 50% YTD return is very impressive. Could you please publish your portfolio for us to view?". I would if I could, but what I was actually trying do was make a point, utilizing the literary techniques of sarcasm and gross exaggeration, to emphasize that a fund manager should not provide total returns without calculating in mark to market or unrealized losses. Otherwise, we're talking fictional returns.

Performance for Harvard, Yale Endowments in 2008

Sun, 21 Sep 2008 08:22:12 -0400

Rememberctr...you state "The donation numbers are public and they only account for <10% of the endowment growth." If donations are counted as actual portfolio return on a year to year basis, then that's one-hell-of-a competitive edge for these endowments. Give me a 5-10% head start on the S&P 500 every year...and I'd be a legendary portfolio manager.

This is the year of the mark to market confessional for all money managers...there's no escaping. I'm too lazy to ascertain what equity positions Yale and Harvard hold long term [don't tell me that they have 100% yearly turnover], but I would bet AIG,LEH,GE,WM,MS,PFE,C... etc. are among them...not to mention their diversification into brutalized emerging markets.

I still have no hesitation questioning the veracity of the above claim that Harvard is beating the market by almost 20% this year, and is actually showing a positive return...minus in flows of cash donations.

Boasting exceptional returns when your internal audits are not made public is disingenuous at best. It's like saying "we use the same measuring stick when evaluating legacies as we do when accepting other students". How else do you explain George Bush's Yale (BA) and Harvard degrees (MBA).

The Artificial Inflation of Stock Prices, Due to the Short Selling Ban

Sat, 20 Sep 2008 21:20:23 -0400

najdorf...

The 3Q earnings (losses) will most assuredly be a horror show; natural longs, true holders of financial cos. shares may say "I'm not willing to hold my shares at this time", and price/share will drop accordingly, more sellers than buyers.

What will not happen at this point in time is the gang rape of a company by naked short sellers; with complicitous assistance by the idiots at the credit ratings agency, one of which has a majority shareholder with the initials W.B., who just happens to be competing with the likes of AIG,MBIA,AMBAC,MTG,etc...

Performance for Harvard, Yale Endowments in 2008

Sat, 20 Sep 2008 18:01:47 -0400

Flamorte...You state, "he may not always be right, butr he is not mendacious in his representation of his fund's methodology"...but that's not my point, nor the point of this particular blog. If your mentor is not marking to market, then it's not exactly an apples to apples presentation of 2008 returns relative to the market or peer performance.

I'm up 50% this year if I don't calculate unrealized losses into my performance...but no one would, or should, bother blogging about that achievement.

And, by the way, I'm not going to buy the non-mercenary philosophy of Ivy League endowment managers...afterall, who is the new CEO of Pimco...

Performance for Harvard, Yale Endowments in 2008

Sat, 20 Sep 2008 16:37:10 -0400

I don't believe their professed returns are verified by an independent auditor. I know both funds hold illiquid real estate and the same types of poor performing bond positions that every other fund manager is holding.. but theirs have obviously not been marked to market. I'm also certain that they have core investments in many of the U.S. large cap stocks that have been taking a beating this year. And, I doubt the the covenants of the Yale and Harvard endowments allows for massive shorting of the market.

I hate calling someone a liar...but, there seems to be smell of mendacity emanating from the Ivy covered offices of those funds.

The Artificial Inflation of Stock Prices, Due to the Short Selling Ban

Sat, 20 Sep 2008 16:12:39 -0400

Your statement, "Because short selling is a necessary part of any free market" has been the crux of the rationale being chanted from the hedge fund community... but not from the millions of individual INVESTORS and thousands of long only mutual funds that represent the vast majority of the global investor class.

There is no U.S. constitutional, free market, global free trade,capitalistic RIGHT to "make a down side bet" that a company's stock is over valued through the mechanism of shorting shares, especially when those shares aren't actually borrowed from another party. In the old days one merely sold their shares of a high priced to earnings stock, or did not bother to invest in it. The market determined value purely by the willingness, or dearth, of individuals to buy and hold a publicly traded company's shares.

Something needs to be done to forcibly stifle the volatility in the equity and bond markets so current and future INVESTORS will feel confident in sticking with a company or a mutual fund for the LONG TERM. Otherwise, the hedge fund/trading community will actually end up destroying the capitalistic free market system that they are now whining about to the press.

Steve Jobs' Health: A Red Herring

Tue, 22 Jul 2008 09:14:43 -0400

"The issue of Jobs' health is old news."

Having watched family and friends succumb to recurrences of a variety of cancers, none as lethal as pancreatic cancer, it's very naive to write off Job's health as old news. My father, a physician with access to the best oncological care in the United States, started out with renal cell cancer which was "isolated" in his kidney...and the kidney was removed. Over time, renal cell cancer has showed up in his lungs (inoperatable), his brain (operatable), and esophagus (inoperatable). At this point my father's cancer is "old news", but my family knows that his death, when it finally comes, will be related to the original diagnosis of kidney cancer.

The Street has the right to question Apple,and receive answers,about Steve Jobs health without vilification...especia... when no succession plan appears to be in place.

Barron's Goes Bullish on Banks, Again

Sun, 20 Jul 2008 16:35:18 -0400

I'll take the second derivative of this contrarian arguement and state the following investment thesis: if the majority of Wall Street pundits think that the calling of the bottom in financial stocks by major financial media sources is a contrarian indicator, then perhaps the bottom in financials is actually here, and that covering one's shorts is the prudent measure (i.e. taking profits on a short bet during maximum fear,distain,or capitulation within a sector or at a targeted stock).

Remember, stock bottoms are always reached, and they're rarely reached, even at the worst of times, at zero. It's the counterpoint of stock valuations never quite moving beyond the finite ceiling of the "greatest fool", who knows he's always the last to the party, and has no willingness to place the bet that he isn't.

contrarian@coalmine

Selling American Airlines in Light of Oil's Continuous Climb

Thu, 08 May 2008 06:14:07 -0400

Great...I love the sound of capitulation in the early morning. I bought AMR yesterday while others were selling due to the "bubble-like levels" of oil.

Executive Compensation: Common Sense, Not Politics

Sun, 09 Mar 2008 09:48:16 -0400

Hey Herb,

What's really wrong with the government mandating salary caps or proposing formula's which limit the amount of money that top management can siphon from publicly traded companies? Can't we just agree that man, left on his own like a boy in an unattended candy shop, is greedy; and that that the "public" owners of these publicly traded companies, as opposed to their private enterprise counterparts, must be protected from unchecked greed? Why is this thought process always tossed away as be un-American, anti-Free Market, or worst. Why do intelligent people always hide behind the phrase "If investors don’t like the compensation structure of a company...they don’t have to buy the stock. It’s really that simple."

I've watched back-to-back CEO's abruptly removed from office (via death, illness, or misconduct) at McDonald's and Boeing without a pause in productivity, while their stocks performed extraordinarily afterwards. How important is a CEO at an established utility company, a cyclical industrial, or a huge service company? If all the electric utility company CEO's disappeared into a void tomorrow would the lights still come on in our homes? If salaries and bonuses at Wall Street's publicly traded companies were slashed across the board, would brokers,traders, and deal makers continue to get out of bed and go to work? I think so.

Friday's Turnaround: Raid on the Shorts

Sun, 24 Feb 2008 08:50:53 -0500

One of the reason's I've stopped reading Bill's blog is his predictable whining when the market acts differently than he expects, especially on a daily basis, causing him to point fingers at the usual suspects. He embraces the Relative Strength Index (RSI) as if it's a true mathematical calculation of extreme market sentiment, rather than just another after-the-fact way of historically charting oversold and overbought conditions--"Gee Whiz, look at this chart, if I'd only bought when everybody hated this stock, and sold it when everyone loved it...I'd...I'd...I'd be RI..I..I..CH!!". When you lean too hard on a crutch, it can sometimes break.

That being said, Charlie Gasparino, a muscle-bound, macho man of a financial journalist, who claims access to the inner sanctums of Wall Street (ie The Boardroom), has been allowed for weeks to scream "Fire in the theatre!, the monolines are heading to a quick and painful bankruptcy; my 'sources' tell me so". He reiterated one of these rants of imminent demise on CNBC as late as Friday morning! Then, with a 1/2 hour left in a short trading week, he broadcasts that a "bail out" for Ambac is a certainty, and banks X,Y& Z are lined up to help.

Action/Reaction....sho... squeeze into the close.

On Monday some Power Pundit will reiterate the Financial Meltdown argument, the markets will plunge, and Bill Cara will say "you see, I told so...".

Yawn!

A Common Sense Look at MBIA

Sun, 17 Feb 2008 12:22:50 -0500

Who knows when the smart money is wrong, or just early? Ackman, in retrospect, has made a brilliant trade; but years ago, when he initiated his short position and MBIA was flatlining at $60, his position looked uninteresting at best. Now the pundits are rightfully applauding his patience and his profits.

Will current MBIA common stock holders be rewarded after a few years of waiting, with their eyes focused toward the dim light at the end of the credit crisis. Time will tell. One thing is certain, the traditional monoline business is not dead...Buffet has confirmed this with his own entrance into the marketplace.

The smart money was obviously early (ie. Warburg Pincus,Marty Whitman, Davis Select Funds, etc.) on this bet that MBIA will first survive, and then eventually thrive again. Early doesn't make these folk ultimately wrong. As for Ackman, one can stay too late at the party...but greed is a bitch to leave unattended on the dance floor when you've been having so much fun with her.

A Common Sense Look at MBIA

Sun, 17 Feb 2008 08:18:55 -0500

If you're going to take the simpleton's route to financial analysis then somebody taking the other side of the argument would say,

"Why did Warburg Pincus double-down on their original investment in MBIA if they thought that they would be throwing good money after a bad investment?" or/

"Why was Marty Whitman's Third Avenue Value fund averaging down on their investment in MBIA through the end 2007?" Whitman's number crunching abililty is legend, and he has a 1/2 century more experience than Ackman. or/

"Why would Chris Davis of the Davis Select, with an bonafide expertise in investing in financial companies, make a big purchase of MBIA common stock at the end of 2007?"